Recent news

03.08.2010
VolgaTelecom reports 25.9% rise in net profit in H1 2010

Press Release

Nizhny Novgorod, August, 2010. The largest fixed-line telecommunications operator in the Volga Federal District (RTS: NNSI/NNSIP, МICEX: VTEL/VTELP, ADR: VLGAY) hereby announces the results of its activities for the first six months of 2010 in accordance with Russian Accounting Standards (RAS).

Revenue – RUR 14,121.5 mln (+5.6% vs. H1 2009);
Revenue from telecommunications services – RUR 13,377.6 mln (+5%);
Expenses – RUR 10,614.9 mln (+1.3%);
EBITDA – RUR 6,346.4 mln (+2.3%);
EBITDA margin – 44.9 % (-1.4%).
Net profit– RUR 2,803.5 mln (+25.9%)
Net profit margin – 19.9% (+3.2%).

A 25.9% increase in the Company’s net profit in H1 2010 was attributable to a 5.6% rise in revenue and a decline in interest payable on borrowed funds due to the implementation of an anti-crisis strategy aimed at increasing free cash flow.

Headline financial and operating indicators in H1 2010

Indicator	1H 2010	1H 2009	Change
Revenue, RUR, mln	14,121.5	13,374.9	+5.6 %
Revenue from telecommunications services, RUR, mln	13,377.6	12,741.7	+5.0 %
Operating expenses, RUR, mln	10,614.9	10,481.0	+1.3 %
Operating profit, RUR, mln	3,506.6	2,893.9	+21.2 %
Net profit, RUR, mln	2,803.5	2 227.1	+25.9 %
EBIT margin, %¹	24.8	21.6	+3.2%
Net profit margin, %²	19.9	16.7	+3.2%
OIBDA, RUR, mln³	5,971.8	5,622.0	+6.2 %
OIBDA margin, %⁴	42.3	42.0	+0.3%
EBITDA, RUR, mln⁵	6,346.4	6,201.2	+2.3 %
EBITDA margin, % ⁶	44.94	46.36	-1.42%
Number of fixed-line main subscriber lines (including agencies) as of end of reporting period, th. units	4,790.6	4,829.3	-0.8 %
Number of broadband Internet users as of end of reporting period, th.	1,071.6	903.2	+18.7 %
Average number of employees on record	28,478	30,308	-6.0 %

¹ EBIT margin is calculated as operating profit/revenue.
² Net profit margin is calculated as net profit/revenue.
³ OIBDA is calculated as the sum of operating profit, depreciation of fixed assets and lease payments.
⁴ OIBDA margin is calculated as OIBDA/revenue.
⁵ EBITDA is calculated as the sum of pre-tax profit, interest payable, depreciation of fixed assets adjusted for the size of interest receivable.

⁶ EBITDA margin is calculated as EBITDA/revenue.

Revenue breakdown

Revenue from telecommunications services stood at RUR 13,377.6 mln in H1 2010, which represents a 5% increase compared to the same period in 2009.

Breakdown of revenue from telecommunications services

Type of service, RUR, mln	1H 2010	1H 2009	Change
Local voice	6,206.6	5,692.0	+9.0 %
Intrazonal telephony	2,173.9	2,266.1	-4.1 %
Telegraph, datacom and telematic services	3,200.8	2,927.1	+9.4 %
Interconnect and traffic transmission	1,269.2	1,317.1	-3.6 %
Wire broadcasting, radio broadcasting and television	376.5	370.2	+1.7%
Mobile and radio and cellular telephony	150.2	168.7	-10.9%
Other core operating activities	0.39	0.46	-15.2%
Total	13,377.6	12,741.7	+5.0%

Revenue from telecommunications services accounted for 94.7% of the total amount of the Company’s revenue in H1 2010. In addition, the proportion of revenue from telecommunications services provided to households stood at 60.5%. The main growth drivers for VolgaTelecom’s revenue in the first half of 2010 were as follows:

- an 18.7% increase in the number of broadband Internet subscribers, which was achieved thanks to a flexible tariff policy, aggressive promotional campaigns and an improvement in the technical quality of service;

- a local voice hike (with respect to permanent household lines used for local voice calls) effective February 1, 2010 in accordance with Order No. 274-s/1 of the Federal Tariff Service of Russia dated November 11, 2009.

With a large xDSL subscriber base and in line with expansion trends on the domestic telecommunications market, the Company is actively engaged in building fiber-optic telecom lines using FTTB (Fiber To the Building) technology, which involves providing high-speed fiber-optic Internet connectivity not requiring the use of telephone lines or a modem).

VolgaTeleccom provides Internet access using xDSL and Ethernet/ FTTx technologies throughout its coverage area, and provides Wi-Fi Internet access services in the Nizhny Novgorod branch and the Mari El branch.

The number of broadband Internet users amounted to 1,071,600 (not counting users connected under national projects) as of the end of H1 2010.

Main business segments

Local voice

The main factors impacting profitability of the local voice market are mobile substitution of traffic and lines, and also tariff growth.

	1H 2010	1H 2009	Change
Number of main subscriber lines (including agencies) as of end of reporting period. th.	4,790.6	4,829.3	-0.8 %
Incl.
Households	4,137.3	4,167.8	-0.7 %
Corporate clients	653.3	661.5	-1.2 %

Local voice revenue. RUR. mln

incl.

6,206.6

5,692.0

+9.0 %

Households

4,753.3

4,343.0

+9.4 %

Corporate clients

1,453.3

1,349.0

+7.7 %

Internet

	1H 2010	1H 2009	Change
Number of broadband Internet users, th.	1,071.6	903.2	+18.7 %
Revenue from Internet and datacom, RUR, mln, incl.	3,126.8	2,860.9	+9.3 %
ISP (broadband lines)	2,694.9	2,400.8	+12.3 %
ISP (dial-up lines)	72.8	176.1	-58.7 %
datacom	359.1	284.0	+26.4 %

Intrazonal telephony

The main factor driving revenue in this segment remains the decline in traffic volumes which is attributable to mobile substitution. The contraction in F2F traffic stood at 6% in H1 2010, while F2M volumes dropped 4% compared to the same period last year.

	1H 2010	1H 2009	Change
Outgoing intrazonal traffic. mln min. Incl.	1,079.1	1,130.4	-4.5 %
F2F	300.6	319.9	-6.0 %
F2M	778.5	810.5	-4.0 %

Revenue from intrazonal telephony. RUR mln including	2,173.9	2,266.1	-4.1 %
Households	896.1	959.7	-6.6 %
Corporate clients	1,277.8	1,306.4	-2.2 %

Expense breakdown

VolgaTelecom’s expenses increased by 1.3% in the first six months of 2010 compared with the same period last year, which was 4.3% less than the rise in revenue. Cost per RUR 100 of revenue stood at RUR 75.17, which is RUR 3.2 less than in the same period last year.

Expenses, RUR, mln	1H 2010	1H 2009	Change
Payrolls	3,326.8	3,146.4	+5.7 %
Social insurance contributions	786.4	760.3	+3.4 %
Depreciation of fixed assets	2,206.4	2,432.9	-9.3 %
Interconnect	1,044.4	1,092.2	-4.4 %
Materials	1,001.6	890.3	+12.5 %
Other operating expenses	2,249.3	2,158.9	+4.2 %
Total	10,614.9	10,481.0	+1.3 %

The main changes in VolgaTelecom’s expenses took place in the following items:

Depreciation of fixed assets. Expenses decreased by 9.3% due to a decrease of the investment program in 2009 in line with implementation of the anti-crisis strategy;
Material expenses. A 12.5% increase in expenses was attributable to a rise in energy, fuel, utility tariffs and postal services, as well as the cost of materials associated with the implementation of telecom promotional services.
Payroll expenses. An increase in the salaries of employees of main professions in line with inflationary expectations.

Investments

The total amount of investments stood at RUR 2,301.6 mln in H1 2010, which is 4.7 times more than the level recorded during the same period in 2009. The main area of investments in H1 2010 was advanced services (66.9% or RUR 1,540.0 mln of the total amount allocated for arranging broadband Internet access using технологий xDSL, FTTx, Ethernet technologies, building NGN networks, etc.). All in all, 287,900 broadband access ports were entered into service during the reporting period.

Breakdown of investments

	1H 2010	1H 2009	Change, RUR, mln
Investments, total, RUR, mln	2,301.6	488.8	+1,812.8
Traditional telephony	65.7	21.3	+44.4
Advanced services	1,540.0	309.6	+1,230.4
Datacom network and infrastructure	396.3	108.7	+287.6
IT investments	108.7	11.7	+97
Other investments	190.9	37.5	+153.4

Main projects in line with the H1 2010 investment program:

- arranging xDSL access (total investments equaled RUR 212.7 mln, 68,100 xDSL broadband ports entered into service);

- arranging Ethernet/FTTx access (total investments equaled RUR 1,100.7 mln, 219,800 Ethernet/FTTx broadband ports entered into service);

- construction of NG networks (with total investments amounting to RUR 224.9 mln and 44,100 packet-switching lines entered into service);

- building an interregional multi-service datacom network (total amount of investments equal to RUR 116.2 mln).

Debt load

All of the Company’s headline financial indicators improved compared to the same period last year, with net debt declining 11.5% to RUR 9,873.4 mln.

Metric	1H 2010	1H 2009	Change
Equity to total assets¹	0.60	0.56	+0.04
Net Debt², RUR, mln	9,873.4	11,158.1	-11.5 %
Net Debt/EBITDA³	0.82	1.01	-0.19
Interest payable/EBITDA⁴	0.06	0.14	-0.08
Accounts receivable turnover⁵, days	22.6	23.1	-0.5
Quick ratio⁶	0.85	0.63	+0.22

¹ Equity to total assets is calculated as the ratio of equity to balance sheet assets as of the end of the reporting period.
² Net debt is calculated as the sum of borrowed obligations adjusted by the amount of cash and cash equivalents.
³ Net debt is calculated as the sum of borrowed obligations adjusted by the amount of cash and cash equivalents.
⁴ Interest payable/EBITDA is calculated as the ratio of interest payable from the Profit and Loss Statement to EBITDA during the reporting period.
⁵ Accounts receivable turnover is calculated as the ratio of average accounts receivable from operating activities minus VAT to Revenue during the reporting period multiplied by the number of days in the reporting period (180 days).
⁶ Quick ratio is calculated as the ratio of Current Assets minus Trade and material inventories and VAT on goods purchased, work performed and services provided to Current liabilities listed on the balance sheet as of the end of the reporting period.

More detailed information on the accounting reports of VolgaTelecom for H1 2010 in accordance with Russian Accounting Standards can be found on the Company’s corporate website at (www.investor.vt.ru/984).

Recent news

03.08.2010 VolgaTelecom reports 25.9% rise in net profit in H1 2010

Press Release

03.08.2010
VolgaTelecom reports 25.9% rise in net profit in H1 2010